Real Estate Investments for a Secure Future

Monthly Archives: May 2013

First, in order to turn nothing into something, you’ve got to start with some ideas and imagination. Now, it might be hard to call ideas and imagination nothing; but how tangible are those ideas? That is a bit of a mystery. I don’t believe that ideas that can be turned into a hotel, ideas that can be turned into an enterprise, ideas that can be turned into a new vaccine or ideas that can be turned into some miracle product, should be called nothing. But tangibly, you have nothing. Interesting! Think of it, ideas that become so powerful in your mind and in your consciousness that they seem real to you even before they become tangible. Imagination that is so strong, you can actually see it.

When I built my first home for my family in Idaho all those years ago, before I started construction, I would take my friends and associates out to the vacant property and give them a tour of the house. Is that possible? Is it possible to take someone on a tour through an imaginary house? And the answer is, “Yes, of course.” “Here is the 3 car garage,” I used to say, and my friends would look and say, “Yes, this garage will hold 3 cars.” I could really make it “live”. I would take them on a tour throughout the house… “Here is the fireplace, and look, this side is brick and the other side is stone.” I could make it so real… “Follow me through the rest of the house. Take a look through the picture window here in the kitchen, isn’t the view great?” One day, I made the house so real that one of my friends bumped his elbow on the fireplace. I mean, it was that real. So, the first step of turning nothing into something is to imagine the possibilities. Imagine ALL of the possibilities. One of the reasons for seminars, sermons, lyrics from songs and testimonials of others is to give us an idea of the possibilities; to help us imagine and to see the potential.

Now here is the second step for turning nothing into something, you must BELIEVE that what you imagine IS possible for you. Testimonials like, “If I can do it, you can do it” often become a support to our belief. And we start believing. First we imagine it’s possible. Second, we start to believe that what’s possible is possible for us.

We might also believe because of our own testimonial. Here is what your testimonial might say, “If I did it once, I can do it again. If it happened for me before, it could very well happen again.” So we believe not only the testimonials of others who say, “If I can do it, you can do it. If I can change, you can change. If I can start with nothing, you can start with nothing. If I can turn it all around, you can turn it all around.” Then we also have the support of our own testimonial, if we’ve accomplished something before. “If we did it once, we can do it again. If we did it last year, we can do it this year.” So those two things together are very powerful. Now, we do not have actual substance yet, although it is very close.

Again, step one is to imagine the possibilities. Step two is to imagine that what is possible is possible for you. Here is what we call step two – faith to believe. In fact, one writer said this, “Faith is substance.” An interesting word: “substance”, the powerful ability to believe in the possibilities that are possible for you. If you have faith to believe… that faith is substance, substance meaning “a piece of the real.” Now it’s not “the real”, it’s not this podium, but it is so powerful that it is very close to being real and so the writer said, “The faith is a piece of, the substance of”. He then goes on to call it evidence, substance and evidence. It is difficult to call substance and evidence “nothing”. It is nothing in the sense that it cannot be seen except with the inner eye. You can’t get a hold of it because it isn’t YET tangible. But it is possible to turn nothing, especially ideas and imaginations, into something if you believe that it is now possible for you. That substance and evidence becomes so powerful that it can now be turned into reality.

An enterprising person is one who comes across a pile of scrap metal and sees the making of a wonderful sculpture. An enterprising person is one who drives through an old decrepit part of town and sees a new housing development. An enterprising person is one who sees opportunity in all areas of life.

To be enterprising is to keep your eyes open and your mind active. It’s to be skilled enough, confident enough, creative enough and disciplined enough to seize opportunities that present themselves… regardless of the economy.

A person with an enterprising attitude says, “Find out what you can before action is taken.” Do your homework. Do the research. Be prepared. Be resourceful. Do all you can in preparation of what’s to come.

Enterprising people always see the future in the present. Enterprising people always find a way to take advantage of a situation, not be burdened by it. And enterprising people aren’t lazy. They don’t wait for opportunities to come to them, they go after the opportunities. Enterprise means always finding a way to keep yourself actively working toward your ambition.

Enterprise is two things. The first is creativity. You need creativity to see what’s out there and to shape it to your advantage. You need creativity to look at the world a little differently. You need creativity to take a different approach, to be different.

What goes hand-in-hand with the creativity of enterprise is the second requirement: the courage to be creative. You need courage to see things differently, courage to go against the crowd, courage to take a different approach, courage to stand alone if you have to, courage to choose activity over inactivity.

And lastly, being enterprising doesn’t just relate to the ability to make money. Being enterprising also means feeling good enough about yourself, having enough self-worth to want to seek advantages and opportunities that will make a difference in your future. And by doing so you will increase your confidence, your courage, your creativity and your self-worth—your enterprising nature.

San Diego—Real estate investment is increasingly becoming a global business with widening competition as more players place money around the globe. Depending on investment goals, players may be drawn to the recovering U.S. markets or the lagging European markets. And while U.S. investors seek opportunities in Asia, local investors there are already well entrenched.

Foreign investors are so eager to pursue opportunities in U.S. real estate that they are racing to join the biggest deals, making it sometimes difficult to differentiate between clients and competitors. That was a conclusion among speakers on the Urban Land Institute Spring Meeting keynote panel, “Capital Markets: Who Has the Capital and Who is Getting It,” which was moderated by Christopher Ludeman, CBRE Group Inc. president of brokerage services and the capital markets. Capital is flowing in from around the globe, ranging from the top-ranking Koreans—now permitted to invest abroad and only held back in the United States by FIRPTA limitations—to those from the Middle East and Canada, noted LaSalle Investment Management global head of the capital markets Jon Zehner. And he is keeping an eye on China and Australia as capital sources.

The Japanese, too, are eager to invest outside their slow-growing borders, noted J. Michael Stedman, senior executive vice president of Union Bank, whose employer is owned by Bank of Tokyo/Mitsubishi.

Meanwhile, some big U.S. investors see more opportunity overseas than in their own backyards. Zehner observed that the spread between assets in primary and secondary markets is now 75 to 100 basis points in the United States and Canada but 250 to 350 basis points in Europe. In fact, his company is representing a major Asian financing source venturing with a regional European fund to invest in U.K.-located residential property. The U.K. economic cycle is six to 12 months behind the U.S.’s, according to Charles Fedalen Jr., executive vice president & group head of the Wells Fargo CRE Institutional and Metro Markets Group and the Wells Fargo Real Estate Banking Group.

Elsewhere, John Miller, senior managing director for Tishman Speyer, pointed to a fund his company recently put together using Chinese currency to invest in that country. He noted a lot of pent-up demand there.

Wherefore art U.S. returns?

Speakers on “The Next Best Bet: Making the Case in a Capital Constrained Market” all expressed interest in European investment. But they also see opportunity in various segments of the U.S. market, although with the U.S. recovery at something of a midway point, identifying risk-adjusted returns can be challenging, they said.

The multifamily sector continues to attract attention, and PIMCO vice president Chris Flick is no exception. He said he still sees room for growth even though the best deals were done two years ago. Damian Manolis, managing director at Prudential Real Estate Investors, advised seeking out micro areas that work, even in more concentrated cities like Seattle and Washington, D.C.

Starwood Capital Group senior vice president Mark Deason, however, sees more opportunity in recovering sectors such as the office market, where he said you can still achieve cash-on-cash returns in the double digits (although largely only as much as 10 percent). Pricing is far ahead of fundamentals in the primary markets but more closely aligned in secondary markets, he noted, although he confessed to remaining focused on the primary cities. And Manolis pointed to the recovering job market and lack of development as contributing to a more solid office sector, even while companies are pursuing smaller space-per-person ratios and hoteling to minimize office size. Flick was less optimistic about the sector but allowed that opportunity could increase as conditions improve.

The panel as a whole was less optimistic about retail and industrial property, although Flick suggested a “barbell” model to retail opportunities, with high- and low-end properties offering the best bets. Grocery-anchored centers, he said, are too popular to offer good deals. That makes it necessary to focus on in-line retailers for growth—and that, the panel agreed, requires strong relationships with national retailers, the better to identify expansion plans. As for industrial, only development offers returns, Flick affirmed.

It is also challenging to find good hotel deals, especially in the limited-service segment, Deason said, although his company has been an active hotel buyer. The panel agreed hotels may have hit the bottom of the cycle and are about to turn upward again.

A series of audience polls turned up continued favor for the multifamily, industrial and retail sectors, with office and hotel eliciting a more negative response.

If you are a student housing owner and have needed to borrow money in the past 10 years, life has been pretty good.

A decade ago, conduit lenders were offering extremely cheap financing at 80 percent plus leverage and 1.20x debt-service coverage (DSC) with interest-only constants. And to say due diligence was “limited” would be an understatement.

In an effort to keep up with the commercial mortgage-backed securities (CMBS) guys, Fannie Mae dropped its DSC to 1.20x and underwrote student housing loans to the exact same parameters as conventional loans.

About halfway through 2007, when the CMBS engine ran out of steam, Fannie Mae and Freddie Mac were still there, cranking out loans at a time when no one else was even in the market. The banks and the life companies were effectively shut down, making the availability of cheap capital from the government-sponsored enterprises (GSEs) that much more crucial.

As all the major GSE competition was sent to the sidelines, both Fannie and Freddie got a bit more conservative on the underwriting for student housing loans. For most deals, DSC rose up to 1.30x and and the loan-to-value ratio (LTV) was reduced down to 75 percent. Starting in 2009, construction financing was scarce and sales took a dramatic dip.

Fast-forward to 2013, and things could not possibly look any different. Sales volume in 2012 reached approximately $3.7 billion, almost double the $1.9 billion reached in 2011. Fannie Mae’s $700 million in student housing financing, combined with Freddie Mac’s $1.7 billion, set an all-time record in the student space. Banks are pumping out construction loans all over the country as developers are aggressively chasing sites to meet the ever-rising demand as student enrollments continue to climb. The CMBS market started to pick up some steam in 2012 and presents serious competition for the agencies, especially as it pertains to the availability of interest-only financing.

Over the past year, cap rates have slowly dropped to the point where Class A cap rates hardly offer a premium over Class A multifamily projects. According to the ARA National Student Housing report, new student housing deliveries will increase dramatically in 2013 and 2014, which should stabilize Class A cap rates in the 5.5 percent to 6.5 percent range.

Fannie, Freddie, and many CMBS shops are offering 10-year, non-recourse, fixed-rate financing in the 3.9 percent to 4.2 percent range with interest-only periods available for a slightly higher rate. The GSEs’ regulator, the Federal Housing Finance Agency, has made it clear that it wants the agencies to be careful with their interest-only options and has told Fannie and Freddie to dial it back a bit in the coming year, in order to make sure the loans exit at an appropriate level.

Fannie is underwriting student housing loans to a 1.30x DSC at a 5.25 percent underwriting floor and a 75 percent LTV (70 percent for a cash-out refinance). Freddie is underwriting a 1.30x to the actual rate; however, if the property is less than three years old, it bumps it up to a 1.35x DSC. Freddie is one of the few providers out there that will offer a full 80 percent loan on an acquisition (75 percent for a cash-out refi); however, the deal must be in a strong market at a school with at least 8,000 full-time students and the borrower must have student housing experience. Most of the CMBS players out there will offer a 75 percent LTV and possibly even more with some mezz financing blended in.

If you are refinancing a brand-new development, the agencies are going to want you to keep some “skin in the game,” and not completely cash you out with a refinance in the first year. Typically, Fannie will allow up to a maximum 90 percent loan to cost, and Freddie will be somewhere between 80 percent and 85 percent.

Borrower credit has become increasingly important in underwriting student housing loans, and if you are a “mom-and-pop” borrower who is new to the student space, Fannie and Freddie may not be the best option. Both agencies like to see a proven track record in the student housing space. If you are an out-of-state owner, they also like to see a third-party manager with significant student housing experience implemented at the property.

With so much new supply on the horizon, lenders will start taking a closer look at borrowers’ schedules of other real estate owned to ensure that the new supply has not caused the operating performance of other properties to suffer.

One of the most critical features to student housing financing is the timing. If you are looking for financing in the spring, lenders will be taking a close look at your pre-leasing to make sure that it is at least as good as last year and at least as good as the market. There were many properties that were strongly pre-leased in spring 2012, but for whatever reason, those high leasing numbers did not prove out in the fall when students started school.

The absolute best time to close a student housing loan is in September or October, after your lender has seen a couple months of rental collections for the new school year at the new rent levels. If you must close a loan before August, it certainly helps if you close it before May. If summer is approaching and you are not 100 percent pre-leased for the coming fall, most lenders will likely tell you to wait it out until September (at the earliest) for funding.

In addition to the normal package of information that Freddie is accustomed to seeing on a new loan quote, it would also like to see a list of every new project scheduled for completion in the coming two years. As lenders, we need to be confident that your project is well positioned within the market to withstand the new supply and continue to grow rents throughout the loan term.

It can be rather daunting to try and figure out the rules and rates from the different capital sources out there, but it’s nice to know you have options. The underwriting, pricing, and process from each of the main student housing capital providers are all different, so it is wise to choose a lender who is very familiar with the student housing product and can guide you through the entire loan process.

Borrowers in this space have had it pretty good for the last 10 years, and as long as the increasing enrollment trends continue and markets don’t get oversaturated with new supply, the good times should continue to roll for the foreseeable future.

Will Baker is senior vice president at Walker & Dunlop, a national commercial real estate finance company, with a primary focus on multifamily lending. Contact him at wbaker@walkerdunlop.com.

All three S&P/Case-Shiller Home Price composite indices, which were published by S&P Dow Jones Indices on Tuesday, showed double-digit annual increases for the three months ending in March. The 10-city and 20-city composites increased year over year by 10.3 percent and 10.9 percent, respectively, with the national composite rising by 10.2 percent. All 20 cities posted positive annual growth.

During the first quarter of 2013, the national composite rose by 1.2 percent, while on a monthly basis, the 10- and 20-city composites both posted increases of 1.4 percent. The Charlotte, Los Angeles, Portland, Seattle and Tampa MSAs recorded their largest month-over-month gains in over seven years.

“Home prices continued to climb,” David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a statement. “Home prices in all 20 cities posted annual gains for the third month in a row. Twelve of the 20 saw prices rise at double-digit annual growth, and the national index and the 10- and 20-city composites posted their highest annual returns since 2006.”

Phoenix again had the largest annual increase at 22.5 percent, followed by San Francisco with 22.2 percent and Las Vegas with 20.6 percent, according to the report. Miami and Tampa saw annual gains of 10.7 percent and 11.8 percent. The weakest annual price gains were seen in New York (up 2.6 percent), Cleveland (up 4.8 percent) and Boston (up 6.7 percent). “[But] even these numbers are quite substantial,” Blitzer said.

Consumer Confidence Up Again

The Conference Board reported on Tuesday that its Consumer Confidence Index, which had improved in April, increased again in May, very likely on the strength (mostly) of positive housing reports. The index now stands at 76.2 (the happy year 1985 = 100), up from 69 in April. The present situation index increased to 66.7 from 61, while the expectations index improved to 82.4 from 74.3 last month.

Consumers felt better about current conditions in May than April: those saying business conditions are “good” increased to 18.8 percent from 17.5 percent, while those believing that business conditions are “bad” decreased to 26 percent from 27.6 percent. Consumers’ assessment of the labor market was also more positive. Those claiming jobs are “plentiful” increased to 10.8 percent from 9.7 percent, while those asserting that jobs are “hard to get” edged down to 36.1 percent from 36.9 percent.

“Consumer Confidence posted another gain this month and is now at a five-year high,” Conference Board director of economic indicators Lynn Franco said in a statement. “Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll-tax hike, and sequester.” The Conference Board puts together the index based on a probability-design random sample conducted by Nielsen, with a cutoff date this month of May 15 for preliminary results.

Wall Street was giddy with the housing numbers on Tuesday, with the Dow Jones Industrial Average up 106.29 points, or 0.69 percent. The S&P 500 advanced 0.63 percent and the Nasdaq gained 0.7 percent.

For equity investors, playing in the multifamily space over the last couple of years has been all about making adjustments. As cap rates have moved down, return expectations have changed for active insurance companies, commingled funds and private wealth in the sector. Lower yields were just one of the variety of topics that came up at the “Opening the Gates: Equity Investors Step Up Their Game” panel at the Apartment Finance Today Conference this week in Las Vegas.

“[Equity investors] had their heart set on 17 to 20 percent,” said Bob Hart, president and CEO of KW Multifamily. “Now they’ve compressed to the mid-teens.”

But Hart thinks investors may have to be willing to accept lower returns for the long term. As the sophistication of the commercial real estate market has increased, so has transparency. And yields have fallen as a result. Operators now have to differentiate themselves through operational experience and the ability to create value.

Another market shift has been in the development arena, where many developers complain about lack of equity availability. Guy Johnson, president of Johnson Capital, said that development money is available for good concepts and people. And those people are not necessarily multifamily builders: He’s seeing hotel developers jump into the apartment space.

Even in a world with development starts picking up and competition increasing for existing assets, there are still a lot of problem loans out there. Eric Silverman, managing director of Eastham Capital, warned that there were a “well” of maturities on the way. “There are clearly opportunities coming,” he said.

Hart didn’t see as many “truly distressed” deals coming down the pike, though. “I’m not seeing the kind of distress that the curve may indicate,” he said, referring to a chart Silverman showed of maturities increasing over the next few years. “It has been far more orderly,” Hart said.

Here were some other key takeaways from the panel:

-In the affordable sector, Andrew Weil, managing director of CWCapital, said that equity is looking to core markets first. Though deal size hinders investment a bit, he expects things to pick up. “As people look for new things to do, that part of the market will pick up,” he said.

-The panelists were not crazy about auctions, with criticisms of the amount of resources they sapped for due diligence and the quality of product found in them. “I see people put a lot of time into auctions and, [by the end of the process] they just want to make a buy,” Johnson said.

-Interest rate concerns were, not surprisingly, a topic of discussion. Weil said the biggest place owners and investors will see their impact is on the exit from deals.

-If the downturn taught equity any lessons, it was that sponsors needed skin in the game. “It’s hard to be serious asking for 80 or 90 percent without putting in your own equity,” Hart said.

Cultivating strong relationships and looking at properties with an investor’s critical eye are key to attracting equity.

It’s always difficult getting that first equity deal closed with a new investor. The process takes relationship building and a tremendous amount of trust. And your task only becomes more difficult if your deal is located off the beaten path.

Yet, the relationships you’ve already cultivated at the local level can serve as one of a project’s best selling points—even if other aspects of the asset, such as its location, are less than stellar.

Having a tight connection with local financiers is a big plus. And having a successful history with that market’s leading brokers reflects very well on a sponsor’s ability to close a deal.

“I love the fact that there’s a relationship with the broker,” said David Valger, founder of New York–based DVO Real Estate, at the AFT Live conference April 9 in Las Vegas. “I can probably get past [a] suburban location.”

Valger voiced his opinions at a panel session on which several mock transactions were acted out between fictional sponsors and investors. Despite the fact that the Class B, suburban property in question was in a secondary market, the strong relationship between the sponsor and the broker earned a hypothetical thumbs-up.

“Having certainty of close for a broker is worth a lot,” said Eric Silverman, founder and managing director of Boston-based investor Eastham Capital. “Knowing people, and having worked with them before—seeing that they come to the closing table, and the deal closes, and the money funds, and they get paid—that means a lot to these ­brokers.”

Diamond in the Rough

Such seasoned broker–buyer relationships are especially important in uncovering hidden gems.

“I think [it’s an] art form to identify a market that has some growth driver to it,” said Mitch Siegler, managing director and co-founder of Pathfinder Partners, a real estate investment firm based in San Diego.

For example, areas where there’s growth potential stemming from a new employer, large hospital, or university can shine a favorable light on a tertiary market.

“[Some place] that’s creating spin-off companies and jobs, or something else that’s causing it to have a tailwind—that’s the only way we’d go into a true tertiary market,” Siegler said.

And yet small markets without their own growth engines can actually offer good yield opportunities, too. Eastham Capital has found success in under-the-radar Midwestern markets such as New Albany, Ind., outside of the Louisville, Ky., submarket—a smaller suburb featuring high cap rates but proximity to a job center.

Smaller cities such as Boise, Idaho, and Albuquerque, N.M., can also be worthwhile for investors, especially since they have solid fundamentals but are often overlooked by larger investors.

“We like markets like that because they’re not on everyone’s radar,” Siegler said.

A Thorough Vetting

Some of the typical due diligence items on an investor’s checklist include property management, access to financing, and title issues.

Whether or not a property is professionally managed can speak volumes about its relative appeal.

On the financing end, projects under $3 million aren’t very attractive to most equity investors—it’s inefficient to allocate capital in such a piecemeal fashion. And smaller properties can have a more difficult time finding debt financing, which can turn off potential investors. Yet if a property is eligible for an agency loan, it’s a big plus.

“If you can get FHA financing, it’s a much more compelling opportunity,” Valger said.

Property reports ranging from environmental assessments to title histories can present another investment hurdle if the costs to remedy the issues outweigh the benefits.

“No one wants to buy a property that has a bad title,” Silverman said.

Looking at a project critically with an investor’s eye can reveal the pluses—and minuses—that translate to either a deal or a missed opportunity.

Without their government guarantees, “the multi-family businesses of Fannie Mae and Freddie Mac have little inherent value,” according to the Federal Housing Finance Agency, which on Friday released two reports, one from each of the government-sponsored enterprises. The reports also conclude that “the sale of these businesses would return little or no value to the U.S. Treasury and to taxpayers.”

The reports, which had been completed in December but not released until now, had been written at the direction of FHFA, in connection with its goal of contracting Fannie Mae and Freddie Mac’s market footprint and potentially generating value for taxpayers. The two GSEs had been directed to analyze the viability of their multi-family businesses in the absence of a government guarantee and review the likelihood of these models operating viably on a stand-alone basis.

The reports “represent the first objective, rigorous, quantification of the effect of the GSEs on the multi-family market,” David Brickman, senior vice president and head of multi-family for Freddie Mac, said in a release.

“The high-level findings,” Brickman continued, “are that we could provide financing to the multi-family market without a government guarantee, but the markets would feel the cost … apartment owners, operators and low-income renters would be the hardest hit.

“We also concluded that any new sources of debt capital would not fill the entire gap left by the GSEs, and the market would experience more frequent and severe boom and bust cycles. In addition, we provided an analysis of a scenario where Freddie Mac could viably operate with a limited government guarantee,” Brickman said.

“There’s nothing surprising in these reports … This is pretty much what everyone expected them to say,” Willy Walker, chairman, president and CEO of Walker & Dunlop, Bethesda, Md., told Commercial Property Executive. Walker & Dunlop is the nation’s largest Fannie Mae DUS lender and one of the largest Freddie Mac servicers.

If Fannie and Freddie were spun off and had to lend without government guarantees, Walker said, they would lend just like private lenders. For example, they would avoid affordable housing and would operate predominantly in larger markets.

Fannie and Freddie would be worth something substantial on the market with their guarantees — but not without them, Walker concluded. “The reports basically reinforce why the federal government is in these businesses.”

Dallas—Industry leaders gathered yesterday in Dallas for NMHC’s 2013 Apartment Strategies/Finance Conference. The program provided valuable insight into the financial and demographic drivers behind multifamily’s continued dominance in commercial real estate. The conference kicked off with a panel discussion on exactly what institutional capital is looking for when it comes to apartments.

Low long-term vacancy rates, strong rent growth over the last 10 years and a heightened demographic demand are three of the main drivers behind institutional hunger for apartments, says Michael Gately, managing director, research group, Cornerstone Real Estate Advisers.

“Apartments have recovered faster than other sectors. We continue to attract capital, and that reflects in current pricing, where core assets in major markets are bidding up more than they were pre-recession,” Gately says. “In some secondary markets we are seeing prices higher than replacement costs, which is a little bit concerning, though good news for sellers.”

Gately points out that the demand for apartments will only increase due to the unprecedented pullback in construction activity that occurred as a result of the recession. The supply constraint is only bolstered when you factor in the age of the national apartment stock, with 78 percent of units built prior to 1990, and two thirds built before 1980. New trends in urban living favor state-of-the-art assets, and chronically under-housed cities like New York, Boston and San Francisco (where 50 to 70 percent of the population rents) will have an easy time landing money for the newest Class A urban core products.

“There is always a premium for the newest and the best,” Gately says. “The obsolescence factor is something you can’t underestimate when you are on the leading wave.”

Though the market fundamentals remain more than solid for apartments, Gately adds that there are near term speed bumps in some markets that institutional capital is keeping an eye on. One example is the fact that the first wave of high-end high-rise development is already seeing some reluctance as rent growth slows down. (Check back with MHN Online tomorrow for data-driven coverage on thestrongest and weakest apartment markets across the county.)

Mike Sobolik, regional director of research, North America at INVESCO Real Estate, adds that institutional investors are looking for—and are willing to pay for—a long term trophy hold. Long term demographic drivers certainly suggest that multifamily will be firing on all cylinders for some time.

“Institutional capital is looking at the industry on the long term, and they want the high quality core located assets,” Sobolik says. “But if you want the high-quality core located asset, you are going to pay up for it. That is what is driving the cap rates so low for the urban Class A assets.”

Sobolik points out that there are several factors contributing to demand over the next 10 years. New household growth is expected to increase by 15 million over the next decade, with 35 percent of that figure electing to rent. That’s 5.25 million new households in the rental market over the next 10 years. When it comes to young renters, in the pre-GSE period 27 percent of those between 20 and 34 years of age lived with their families. In 2011 that number was at 31 percent, a difference of 3 million people. As the job market continues to improve, some of these younger workers will move out into the apartment market, bringing up the demand closer to 6 million people over the next 10 years.

“But I believe this is a front-loaded demand story,” Sobolik adds. “Pent up demand is not going to take 10 years to see fruition. It is going to happen in the next three to five years.”

Jack Kern, chief investment research officer at Continental Realty Advisors, provided some insight into the locations and asset classes that institutional funds are looking for.

“To me there are three areas: downtown urban, inter-urban in the seven- to 10-mile range from CBDs and suburban. There is just such a shortage of high-quality urban core assets. On the inter-urban side, assets positioned near transportation and shopping hubs will continue to do relatively well. Unfortunately I have seen ultra-luxury buildings in suburban areas that just aren’t justified, as the people who would live in that sort of property want to be closer to the action.”

Kern proposes that owners and investors get familiar with real time mapping analytics to see how patterns vary from market to market, with changes in occupancy being the biggest indication for where opportunity exists. He adds that investors should look past the gateway markets for value, as pricing can be a bit more favorable.

“We want something that will work long term for the renter, which has been a good strategy for us, even in those Class B spaces in Orlando, Houston and Louisville.”

Gately agrees, and believes that capital is more readily flowing to secondary markets as institutional investors become more comfortable with the asset class and the demographics driving its strength.

“It is getting challenging to place core capital in the top tier, gateway markets,” Gately says. “Many of our clients are listening and relaxing with us. Sure they sign on for a strategy and they want some control. But before they give us parameters, I find more and more clients are relaxing and looking at the core-plus, value-add opportunities.”

The science of physics recognizes two kinds of inertia – both of which can be related to procrastination. The first law states, “Standing objects tend to remain stationary.” The second law is the inverse: “Moving objects tend to stay in motion.”

Procrastination is stationary inertia. We aren’t moving, and we therefore don’t move!

Procrastination overcome, however, moves us into the arena where the law of motion takes over. We frequently find that once we’ve started a project or process, we stay with it until completion. One of my favorite sayings that my friend Dr. Robert Schuller posted on my Facebook: “Beginning is Half Done!” (I’ve modified it to say, “Beginning is Half Won!”)

Here are seven techniques to overcome procrastination:

1. Take five minutes to identify what you are putting off. On a blank sheet of paper, note several important activities that you realize you are delaying or have put on hold.

2. Look at your list of tasks and do one of them right now.
Put the energy you’ve been directing toward excuses into the activity you’ve been avoiding. You’ll discover that action eliminates anxiety.

3. If getting started is the hard part for you, set a designated time slot in the day to work on the list.
Set aside thirty minutes of your lunch hour for work specifically on one job, project, or personal goal that you’ve been avoiding or find difficult to start.

4. Don’t worry about perfection.
What counts is quality of effort, not perfect results. Don’t let yourself get bogged down with a preoccupation for perfectionism.

5. If what you are putting off involves other people, consult with them.
Your reasons for delaying action may be imaginary. Lack of communication often turns molehills into mountains.

6. If you fear the consequences associated with the action you’ve been avoiding, ask yourself, What’s the worst thing that could happen If I did this today?
The worst–case scenario most likely would be a minor inconvenience or a temporary setback.

7. Finally, vividly picture how you’ll feel once the task is done.

Freedom from anxiety. Freedom from nagging pressures. Freedom from self–doubt. Accomplishing put–off tasks will give you a great boost of confidence and energy!